How one trader made instant millions off of the Fed

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Options Action: Bonds set to rally?

One options trader made an instant windfall by putting on a well-timed trade that profited from the quick rally in bonds that followed the Federal Reserve's decision to keep short-term rates at ultralow levels.

At 1:03 p.m. ET, less than an hour before the central bank's announcement, an options trader made a bullish bet on the popular long-term Treasury ETF TLT, which was then trading at $118.83.

Specifically, the trader bought 51,000 October 121/124 call spreads on the TLT for 66 cents per share, for a total cost of $3.4 million. (Each options contract controls 100 shares.)

This is a trade designed to profit from a rise in the TLT over the next month—but the trader did not have to wait nearly that long. After the Fed did what most thought it would and kept its key federal funds rate target at ultralow levels, the ETF ripped higher, closing the day at $120.25, and opening Friday at $121.21.

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